Correlation Between Oil Gas and Banking Fund

Can any of the company-specific risk be diversified away by investing in both Oil Gas and Banking Fund at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Oil Gas and Banking Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Oil Gas Ultrasector and Banking Fund Class, you can compare the effects of market volatilities on Oil Gas and Banking Fund and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Oil Gas with a short position of Banking Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil Gas and Banking Fund.

Diversification Opportunities for Oil Gas and Banking Fund

0.75

Correlation Coefficient

Oil Gas  Banking Fund

Poor diversification

The 3 months correlation between Oil and Banking is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Oil Gas Ultrasector and Banking Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Class and Oil Gas is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Oil Gas Ultrasector are associated (or correlated) with Banking Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banking Fund Class has no effect on the direction of Oil Gas i.e., Oil Gas and Banking Fund go up and down completely randomly.

Pair Corralation between Oil Gas and Banking Fund

Assuming the 90 days horizon Oil Gas is expected to generate 1.89 times less return on investment than Banking Fund. In addition to that, Oil Gas is 1.05 times more volatile than Banking Fund Class. It trades about 0.08 of its total potential returns per unit of risk. Banking Fund Class is currently generating about 0.15 per unit of volatility. If you would invest  8,410  in Banking Fund Class on September 13, 2024 and sell it today you would earn a total of  1,384  from holding Banking Fund Class or generate 16.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Oil Gas Ultrasector  vs.  Banking Fund Class

Oil Gas Ultrasector

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Gas Ultrasector are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Oil Gas may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Banking Fund Class

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banking Fund Class are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Banking Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oil Gas and Banking Fund

The main advantage of trading using opposite Oil Gas and Banking Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oil Gas position performs unexpectedly, Banking Fund can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Banking Fund will offset losses from the drop in Banking Fund's long position.

The idea behind Oil Gas Ultrasector and Banking Fund Class pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.